Interest on a personal loan used in the business belongs on Line 16b, interest, other.
Why line 16b
Interest follows the use of the money, not the name on the loan, so interest on a personal loan is deductible on line 16b to the extent the proceeds actually went into the business. Borrow $20,000 and put $15,000 into the business and three quarters of the interest is business interest, with the rest personal and not deductible. Mixing the proceeds in a personal account makes that tracing much harder, so move business proceeds straight into the business account.
Stop looking up lines one at a time. ClaryBook totals your year into an IRS Schedule C worksheet in form order, Part I and Part II line by line, so interest on a personal loan used in the business lands on Line 16b without you sorting it.
Start for freeWhat interest on a personal loan used in the business is confused with
- not deductible, not deductible
- The share of the interest traceable to personal spending is personal interest with no deduction, even though the same loan funded the business.
- Line 16a, interest, mortgage
- Line 16a needs a mortgage on real property used in the business and paid to a financial institution; a personal loan or a family loan goes on 16b.
Examples that belong on line 16b
- $900 of interest on a $20,000 personal loan where $15,000 bought business equipment, so $675 is deductible
- Interest on a personal credit card used once to buy $3,000 of inventory
- A family loan at a stated rate used entirely for business start-up purchases
- Interest on a home equity loan whose proceeds went into the business account and paid operating costs
What does not belong here
- The personal share of the interest
- Interest on a retirement plan loan, which is paid back to your own account and is not deductible
- Interest on money you lent the business from your own savings, since you cannot deduct interest paid to yourself
- Loan fees, which are not interest
What to keep
Keep the loan documents and a bank trail showing the proceeds landing in the business account and what they bought. The tracing is the entire case here.
Other expenses on line 16b
| Expense | Line |
|---|---|
| a merchant cash advance finance charge | Schedule C, Line 16b |
| business credit card interest | Schedule C, Line 16b |
| business loan interest | Schedule C, Line 16b |
| car loan interest | Schedule C, Line 16b |
Related lookups
Sources
This page explains how Schedule C lines work. It is general information, not tax advice for your situation. If an expense is large or the answer turns on a fact about your business, confirm it with your tax preparer.
Looking for a different expense? The full Schedule C line lookup has every line from 8 to 27 with the expenses that belong on each, and Schedule C expense categories walks the whole form in order.
Stop looking up lines one at a time. ClaryBook totals your year into an IRS Schedule C worksheet in form order, Part I and Part II line by line, so interest on a personal loan used in the business lands on Line 16b without you sorting it.
Start for free